Question

Warwick's co., a women's clothing store, purchased $75,000 of merchandise from a sup- plier on account, terms fob destination, 2/10, n/30. warwick's returned $9,000 of the merchandise, receiving a credit memo, and then paid the amount due within the discount period. journalize warwick's entries to record (a) the purchase, (b) the merchandise re- turn, and (c) the payment answer

Answer 1

This question has a three part answer, with each part broken out below:

A. To record the purchase there is a debit to Purchases and a credit to Accounts Payable, each for $75,000.

B. To record the return there is a debit to Accounts Payable and a credit to Purchases Returns and Allowances, each for $9,000.

C. The amount of the payment is $75,000 - 9,000, which is $64,000. They are paying during the discount period, so will only be paying 98% of this amount, which is $62,720.

The entry is a debit to Accounts Payable for $64,000, a debit to Purchases Discounts for $1,280, and a credit to Cash for $62,720.